Retired Harrison Township attorney advocating for city of Detroit retirees

Michael Karwoski, an advocate for city of Detroit retirees in the city’s bankruptcy, is lobbying his peers to vote in favor of the current plan that limits pension cuts.

Karwoski, of Harrison Township, said that while the proposal is far from ideal, it “beats the alternative” because it guarantees retirees a minimum amount. Rejecting the plan would be a big gamble, likely resulting in much larger cuts, he said.

The Retirees Committee that Karwoski sits on also recommends the 23,500 retired people support the plan. The voting deadline is July 11.

“The committee decided the deal on the table is better than taking a chance of winning big (in court) or losing big,” Karwoski said. “It’s the certainty of a settlement vs. the worst outcome if we appeal and lose.”

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Karwoski, who retired for the city’s law department in 2012, was asked to apply for the nine-member committee after he spoke at a hearing last July. He is one of three members not representing a union. He said the experience has “taken more time and energy than any of us on the committee expected it to be.”

“I thought I was going to do some part-time work but the bankruptcy has become a full-time job,” albeit nonpaid except for reimbursement for mileage and parking, he said.

He sifts through more than 50 emails a day that are sent to everyone involved in the process. Most of the notices are legal filings. He attends one meeting four to six hours long per week in Detroit, participates in two telephone conference calls per week and has attended many court hearings at the federal building in Detroit. He attended three to four days per week during the eligibility trial last fall and plans to do the same at the main trial later this summer.

He called the bankruptcy “very complicated and big.”

At $18 billion, it’s the largest municipal bankruptcy in U.S. history.

The pension-cuts proposal, a key to the bankruptcy’s success, would reduce monthly pensions by 4.5 percent and nix cost-of-living increases for the approximately 10,000 general retirees. The approximately 13,000 police and fire retirees would see no reduction in their pension and cost-of-living increases would be capped at 1 percent. Police and fire retirees are receiving the better deal because their pension fund is in better shape, Karwoski said. Police and fire retirees opted out of Social Security so don’t collect it.

A major wrinkle in the deal affecting 3,800 of the general retirees is a substantial, retroactive reduction in interest paid by the city into a volunteer annuity savings plan that participants could cash out at retirement or merge into their pension. Money was taken out of employees’ paychecks and placed into the account. The combined reduction in the savings program and pension is capped at 20 percent, under the proposal.

Detroit Emergency Manager Kevyn Orr has promised to seek much larger reductions in the pension cuts if the pensioners reject it as part of the effort to wipe out the $18 billion debt.

The legacy costs account for about half of that bill.

Karwoski retired after 15 years with the city. Prior to that, the De La Salle Collegiate high school graduate, who attended when it was located on Connor Avenue in Detroit, spent 18 years as counsel and lobbyist for the State Bar of Michigan.

He said his pension is slightly above the average. He explained he will lose 16 percent, about $320 to $350 per month, as well as the future COLA payments, which actuaries have determined is another 13 percent loss on average. However, if the pension fund returns to health, retirees could regain some of their losses.

“That’s another reason to vote for the plan,” he said, adding, however, the restoration would come gradually over years “in fairly small increments.”

For the plan to gain approval, it must receive a majority of “yes” votes and two-thirds of the total pension value, he said. Each participant has been assigned a pension value based on actuary determination.

A yes vote is vital, he added, because the “grand bargain” passed by the state Legislature and signed by Governor Snyder earlier this month is contingent upon its approval. And the grand bargain is a key component of getting the bankruptcy approved. It contributes $816 million over 20 years to the city from the state, a private foundation and a pledge by the Detroit Institution of Arts, according to published reports.

Pensioners also are voting on their health care plan, but Karwoski said the severe cuts in health care subsidies will go into effect not matter the outcome. Retirees will receive a monthly stipend between $125 and $400 to apply to a health care plan premium, he said.

The bankruptcy affects many Macomb County and other suburban retirees of the city of Detroit, Karwoski noted.

“There’s not too many who live outside of Michigan, not as many in Arizona or Florida as you would think,” he said. “The retirees aren’t particularly well-off. They can’t afford a condo in Fort Myers.”

The average pension for a retired general city worker is $19,000 per year, he said. For retired police officers and firefighters, it is about $30,000.

“Some people will be pushed below the poverty line after this bankruptcy,” he said.

Karwoski said the process has been eye-opening. He has been most surprised by the size of the fees charged by bankruptcy attorneys and experts hired by the committee and city. Meanwhile, he can’t even get a lunch tab reimbursed during day-long negotiations.

“It’s hard to understand when a city is going through bankruptcy and many of these people are making so much money,” he said. “But I’m told by people involving with bankruptcies that this is not unusual. I’m told that these are discounted rates.

“We are working with attorneys and advisers who are making up to $700 per hour. I think it is shocking to the average person and the average retiree. (But) we had to hire people who we knew could go toe-to-toe with the city’s experts in negotiations. We’ve done the best job we can to preserve the pensions.”

The bankruptcy expense, mostly for the highly paid experts, cost $36 million last year. And Karwoski believes that amount will be easily exceeded this year.

Despite the bankruptcy’s many obstacles, including objections from some of the 100,000 creditors, Karwoski is optimistic it will take place by the end of the year. He commended the bankruptcy jurist, U.S. District Judge Steven Rhodes, for speeding along the process. A trial, expected to last six weeks, is scheduled to start Aug. 14.

“The court is trying to settle as many claims as possible to shorten the trial,” he said.